Employers and the real Living Wage - responding to civil regulation - CIPD

 
CIPD Applied Research Conference 2017
The shifting landscape of work and working lives

Employers and the real Living Wage –
responding to civil regulation

Conference Paper

Professor Edmund Heery, Dr Deborah Hann and Dr David Nash
Cardiff Business School, Cardiff University.

The authors retain the copyright in this paper and are responsible for the accuracy of its content.
CIPD Applied Research Conference 2017

Employers and the real Living Wage –
responding to civil regulation
Professor Edmund Heery, Dr Deborah Hann and Dr David Nash
Cardiff Business School, Cardiff University

Summary
This article presents survey responses from employers that pay the ‘real Living Wage’, a
voluntary wage standard promoted by the Living Wage Foundation. It reports that the
primary reasons for adopting the Living Wage are to act in accordance with values and to
promote both a corporate and employer brand. It also reports that owners and senior
managers have played the main role in the adoption of the Living Wage, with HR
professionals also being involved in larger employing organizations. The article
concludes by assessing whether there is a ‘business case’ for the Living Wage and
identifies a series of performance and reputational benefits that employers feel they have
obtained by paying the Living Wage.

Introduction
A growing phenomenon in the UK labour market is the growth of ‘civil regulation’, that is,
the spread of labour standards, norms and codes of good practice that are formulated by
civil society organisations and promoted for voluntary adoption by employers (Williams et
al 2011). The voluntary or ‘real’ Living Wage is a striking example of civil regulation of
this type. It is an hourly wage standard, promoted by the Living Wage Foundation and
based on independent research into the expenditure needs of low-income workers, which
is designed to provide employees with a modest but decent standard of living. The
Foundation accredits organisations that agree to pay the Living Wage to their direct
employees and to the employees of contractors who normally work on their premises.
The Living Wage has to be paid to all workers aged 18 and above who are not on
training contracts and who have worked for the employer for at least six weeks.
Accredited employers give an undertaking to increase wage rates within six months of
the annual announcement of the Living Wage each November. Separate rates are
calculated for London and for the remainder of the UK. In early 2018, these rates stood
at £10.20 and £8.75, respectively. At the same time, the Government’s confusingly titled
National Living Wage, the statutory minimum wage for those 25 and over, was £7.50.

Although the Living Wage campaign in the UK dates back to 2001, accreditation of
employers by the Living Wage Foundation only began in 2011 (Wills and Linneker 2013).
Since then the scheme has achieved considerable success. By November 2017, the
impact data collected by the Foundation indicates that there were 3,752 accredited Living

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Wage Employers (LWEs) who directly employed 1.5 million workers, 5% of the UK
employed workforce. Across these employers, approximately 135,000 workers have
benefited directly from the Living Wage, with the total transfer of value to low-wage
workers amounting to about £400 million. In addition, the standard has been adopted by
other employers that have not sought accreditation, often as a result of trade union
pressure (Prowse and Fells 2016). There is a substantial non-accredited Living Wage that
has amplified the impact of the standard in industries such as local government, the NHS,
museums and galleries, and the arts.

The impact data indicates that Living Wage campaigners have been successful in
persuading employers to sign up to this particular form of civil regulation. In what follows,
we examine why employers have chosen to adopt the standard, who within their
organisations has played the main role in taking the decision to adopt, and what the
consequences have been for employers. With regard to the latter, we pay particular
attention to the positive business benefits of the Living Wage. The Living Wage
Foundation promotes the Living Wage to employers on the basis that there is a strong
‘business case’ for higher wages (Heery et al 2017) and we assess the strength of this
claim.

The research instrument that we have used to address these questions is a population
survey of all accredited Living Wage Employers carried out in late 2016. The purpose of
the survey was to obtain representative data across the full range of experience of
accredited employers, including their reasons for adopting the standard and their
perceptions of its effects. The survey was carried out with the co-operation of the Living
Wage Foundation and was completed by the latter’s named contact in accredited
organisations. In smaller organisations these contacts tended to be managing owners,
directors or executives, while in larger organisations they tended to be specialist
managers, working in HR, communications, procurement or corporate responsibility. The
survey was distributed in hard copy and through the LWF’s email list to a total of 2,851
accredited organisations, 845 of which (29.6%) responded. Responses were broadly
representative of the survey population in terms of size, sector and geographical location,
and the resultant dataset provides a strong foundation from which to generalise about the
employer experience of the Living Wage.1

Reasons for introduction
The first issue explored in the survey was the reasons why employers decided to seek
accreditation from the Living Wage Foundation. An essential characteristic of the Living
Wage is that it is a voluntary standard, which employers choose to adopt. Given this
characteristic, it is important to know what motivates that choice. Is the decision to

1
  A full account of the survey and a presentation of the complete results can be found in the following
report, The Living Wage: Employer experience, available from:
www.cardiff.ac.uk/__data/assets/pdf_file/0008/722429/The-Living-Wage-Employer-Experience-Report.pdf

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become accredited values-driven, arising from employer support for the Living Wage
campaign? Is it instrumental, driven by a calculation of business advantage? Or is
accreditation the result of pressure from suppliers, funders, customers or campaigners
who have encouraged employers to adopt the Living Wage?

Figure 1 shows the pattern of replies to questions on why employers ‘decided to become
a Living Wage Employer’, with responses placed in rank order of frequency. It
demonstrates that for many organisations the key justification for signing up to the Living
Wage is values- or mission-led. The vast majority of employers indicated that their
decision to seek accreditation was the result of a desire to demonstrate that they are a
socially responsible employer or more broadly to act in accordance with their core
mission or aims.

                    Figure 1: Reasons for becoming a Living Wage Employer

                     Social responsibility

          Organisational mission/values

           Reputation as good employer

            Enhanced overall reputation

      Support for Living Wage campaign

             Recognize staff contribution

       Reputation with customers/clients

      Recognition for already paying LW

         Differentiation from competitors

         To lead change in your industry

           To lead change in your region

     Improved recruitment and retention

           To prevent reputational harm

            Improved staff motivtion and…

  Initiate improvements in work practices

  Secure business from the public sector

             Secure business from other…

  Match other employers in your industry

       Raise quality of goods or services

  Relations with politicians/public bodies

     Response to a public LW campaign

           Secure funding or investment

                                             0%    20%         40%          60%        80%        100%
             Great Importance        Moderate Importance     Little Importance    No Importance

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Figure 1 also demonstrates that the Living Wage has been introduced for instrumental
reasons. Prime amongst the latter is a concern to manage the reputation of the
organisation, with many employers reporting that they had adopted the Living Wage to
improve their reputation as an employer, their corporate reputation or to differentiate
themselves from their competitors. In addition to reputation management, many
employers declared an HR motivation, especially with regard to securing improvements
in recruitment and retention. Other instrumental reasons for introducing the Living Wage
were reported less frequently. In some cases, becoming an accredited employer has
been driven by business considerations and a desire to secure new contracts or to
access funding. Supply-chain pressures of this kind, however, have been significant only
for a small proportion of Living Wage Employers.

Two other findings presented in Figure 1 are also noteworthy. First, it is apparent that in
many cases employers have sought accreditation because they were already paying the
Living Wage and, in fact, for about a third of organisations signing up there were no
immediate beneficiaries: all employees both direct and indirect were already being paid
at or above the Living Wage rate. This finding echoes those from research on Investors
in People and other voluntary HR standards, which demonstrates that conforming
businesses are often already compliant and likely to incur minimal additional costs in
accepting civil regulation (Hoque 2003).

Second, it is also noteworthy that very few employers report that they have been
pressured into signing up to the Living Wage by a public campaign. In some cases
pressure from external campaigners has been significant and on occasion employers
have been targeted through demonstrations, media exposé and other ‘agitational
methods’ (Bunyan 2016). In the main, however, campaigning has not taken this form but
rather has appealed directly to the responsibility and enlightened self-interest of business
owners and managers. In many cases, it has assumed the form of peer-to-peer
encouragement, with similar organisations in the same industry or region appealing to
other employers to pay the Living Wage.

Internal influences
The evidence in Figure 1 deals with the reasons why the Living Wage was adopted, but it
is also important to know who was involved: who are the key internal decision-makers
taking the decision to become accredited? In particular, is it a management decision,
involving senior leaders from within the organisation? Or has it flowed from upward
pressure, with employees and employee representatives playing a significant role?
Figure 2 shows the responses to this issue collected through the survey, again placed in
rank order.

It is clear from Figure 2 that senior managers and the owners of organisations have been
the primary internal decision-makers. The decision to seek Living Wage accreditation in
most organisations, therefore, has reflected the established structure of authority. It

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should also be noted that in about a third of cases investors have helped shape the
decision, and in just under half non-executive directors or the trustees of not-for-profit
organisations have played a role; board members in educational, charitable and cultural
institutions have often been centrally involved in the decision to adopt the Living Wage.

              Figure 2: Internal influences on the decision to become accredited

                 Senior managers or executives

                The owner(s) of the organisation

                      HR/Personnel manager(s)

             Non-executive directors or trustees

                  CSR/sustainability manager(s)

                  Investors and/or shareholders

                      Higher paid staff members

 Communications or public relations specialist(s)

       Mangers/supervisors of low paid workers

           Purchasing/procurement manager(s)
    Staff members seeking to be paid the Living
                     Wage
 Stakeholders who use the services you provide

       Trade union members or representatives

           Non-union employee representatives

                                                    0%    20%       40%            60%        80%       100%
             Great deal of influence      Moderate influence    Little influence         No influence

In some organisations, specialist managers have also been centrally involved, such as
purchasing, communications, CSR and HR specialists. In fact, because many accredited
organisations are small enterprises without an elaborate management structure, the
evidence in Figure 2 underestimates the involvement of specialists. If the analysis is
confined to organisations in which specialist managers are found, their influence stands
out more clearly, with the influence of HR specialists being particularly apparent.
Amongst employers that reported the presence of a specialist HR function, 51% said that
HR had exerted a great deal of influence over the decision to become accredited and
86% said that HR had had at least some influence. Other specialist managers have also
been involved, but amongst specialists primary responsibility for Living Wage
accreditation has been with HR.

The final thing to note from Figure 2 is that upward pressure from employees and
employee representatives has very much been a secondary influence upon accreditation.

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In some cases the low-paid themselves have pressed for the introduction of the Living
Wage, or other groups, such as line managers, higher-paid workers or organisational
members who consume services, such as students and religious congregations, have
spoken on their behalf. Trade unions have also been involved in the decision to accredit
in the minority of organisations where they are present (18%), but even in these cases
their influence has been secondary to that of senior managers – a pattern that is attested
to in some of the published case studies of Living Wage campaigns (Johnson 2017,
Lopes and Hall 2015). The overall picture presented very starkly in Figure 2 is of a top–
down decision with minimal expression of upward employee voice.

Benefits and challenges
Civil regulation, like the Living Wage, is often promoted on the grounds that it can serve
the interests of employers as well as employees. It is suggested that there is a
compelling ‘business case’ for progressive management and, as we have seen, the
Living Wage has often been promoted to employers on this basis. Accordingly, in this
section we consider the extent to which employers believe they have reaped positive
benefits from the Living Wage, the types of gain that are most likely to be reported, and
the depth of the benefit achieved, that is, whether it is modest and incremental or major
and transformative. We also consider the challenges that flow from the Living Wage and
assess whether these outweigh the positive gains from being a Living Wage Employer.

Figure 3 shows employer estimates of the positive effects of the Living Wage on their
organisations, with effects ranked according to the average ‘score’ across the sample of
employers. It is clear from the figure that most employers believe that they have
benefited from Living Wage accreditation. The vast majority of employers (93%) reported
that they had gained from accreditation and of the 21 potential benefits listed in the
figure, eight were reported by a majority of employers, 11 were reported by a third or
more, and all were reported by at least some organisations. The average number of
beneficial outcomes reported across all employers was 8.7. Clearly, those employers that
have adopted the Living Wage are convinced there are business benefits.

There is an important qualification to this judgement apparent in Figure 3, however.
While the latter shows widespread positive effects for employers, it also shows that the
scale of change is generally modest, albeit with substantial variation across the sample.
Employers reporting a beneficial change were asked whether it was of ‘major
significance’, of ‘moderate significance’ or of ‘limited significance’. For 20 of the 21 items
in the list of potential benefits, a majority of employers reported that the effect was of
‘limited significance’ and for only five items did 10% or more report that the effect was of
‘major significance’. The overall pattern is therefore of a broad but relatively shallow
positive effect. On this evidence, Living Wage accreditation appears to operate as a
benign but not transformative change within employing organisations – an effect which in
many cases reflects the facts that only a minority of employees are covered by the
standard and that the main beneficiaries have been workers in contracted-out support
functions, such as cleaning, catering, security and grounds maintenance.

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Figure 3: Benefits of paying the Living Wage

                Enhanced reputation as an employer
              Enhanced general/corporate reputation
      Differentiated the organisation from competitors
      Improved relations between staff and managers
         Increased organisational commitment of LW…
              Increased motivation of LW employees
                 Improved retention of LW employees
     Improved recruitment of employees into LW jobs
    Improved the quality of applicants for Living Wage…
   Improved relations with public bodies or politicians
   Encouraged positive changes in work organisation
                 Improved attractivenes to graduates
       Attracted customers/clients to the organisation
       Raised skills amongst Living Wage employees
      Helped the organisation secure public contracts
      Improved quality of goods or services produced
  Helped the organisation win private sector contracts
                          Reduced sickness absence
           Helped secure funding for the organisation
        Improved the quality of subcontrated services
                        Reduced incidental HR costs
          Reduced the bill for subcontracted services

                                                          0%       20%        40%     60%       80%          100%

         Major significance     Moderate significance          Limited significance   No noticeable effect

It is also apparent from Figure 3 that some positive effects are stronger than others, and
that employers are likely to report that the Living Wage has generated certain types of
beneficial outcome. The most commonly reported positive change was enhancement of
the organisation’s reputation, with a clear majority of employers reporting effects of this
kind. Many employers clearly believe that Living Wage accreditation has given them a
stronger ‘employer brand’ and enhanced their overall reputation, and these effects, in
turn, have become a source of competitive advantage, differentiating the employer from
other, similar organisations.

The next most commonly reported benefit were positive HR effects. Most notable in this
regard were benefits to labour supply; over half of employers reported that the Living
Wage had improved both recruitment and retention, while nearly half (45%) reported that
accreditation had ‘improved the quality of applicants for Living Wage jobs’. Over a third of

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employers, moreover, reported that accreditation had made the organisation ‘more
attractive to graduates and higher employees’, reinforcing the belief that conforming to
civil regulation, like the Living Wage, can enhance the employer brand.

The least most commonly reported gains were in the area of wider business operations,
though for some organisations effects of this kind clearly were important. Living Wage
accreditation has helped some organisations obtain contracts with public and private
clients. It has also helped some organisations secure funding, particularly in the charity
sector, and has helped raise the quality of service provided to client companies from their
contractors. Commercial and operational benefits of Living Wage accreditation of this
kind may become more significant in the future; across much of the UK public sector
there is an increasing appetite to use procurement as a means of leveraging labour
standards. At present, though, the gains that can accrue to organisations from
responding to pressures of this kind remain less significant than the reputational and HR
benefits of paying the Living Wage.

The survey also asked employers about the challenges of paying the Living Wage. They
were asked whether Living Wage accreditation had: reduced wage differentials; led to
problems in recruiting to team leader or supervisory positions; increased wage costs and
the costs of subcontracting; made it more difficult to win contracts from clients or to
identify subcontractors; and increased monitoring costs ‘to ensure the Living Wage is
being paid’. The pattern of responses is shown in Figure 4.

                            Figure 4: Challenges of paying the Living Wage

            Increased the organisation’s wage bill

                        Reduced wage differentials

      Increased the bill for subcontracted services

 Increased monitoring costs to ensure compliance

   Difficulties in recruiting to supervisory positions

         More difficult to win contracts from clients

            More difficult to identify subcontractors

                                                         0%       20%        40%         60%      80%       100%

          Major significance       Moderate significance          Limited significance    No noticeable effect

All of these potentially challenging consequences were reported by at least some of the
sample, though in only a single case – increasing the organisation’s wage bill – did a
majority of employers report the effect. The overall pattern shown in Figure 4 is of weak
negative effects, reported by a minority of employers and with the scale of effect typically

                                                              8
modest. The negative effects of Living Wage accreditation, on this evidence, are modest
and limited in scale and scope.

There is also evidence that for most employers they do not outweigh the positive
consequences of the Living Wage. The average ‘challenge score’ across all of the items
listed in Figure 4 was higher than the average ‘benefit score’ calculated from the items
listed in Figure 3 for about a fifth of employers (23%). A small proportion of organisations
have abandoned Living Wage accreditation and it is likely that they fall within this group,
for whom benefits are modest or uncertain while the increase in costs is tangible and
significant. This group constitutes a minority, however, and for most employers (71%)
there was evidence that the perceived benefits of the Living Wage outweighed the
challenges.

Conclusion
This paper has used the case of the ‘real’ Living Wage to examine a growing
phenomenon within the UK labour market: the promotion of voluntary regulation by civil
society. There is now a substantial number of codes, norms and conceptions of good
employment practice that are promoted by civil society organisations and which
employers are encouraged to voluntarily adopt. The experience of the Living Wage
indicates that many employers are receptive to activity of this kind. There are now nearly
4,000 accredited Living Wage Employers, a number which includes many of the leading
organisations within British business.

Our survey of Living Wage Employers has provided insight into why organisations sign
up to standards of this type. It suggests that compliance stems from a complex of
reasons, but that a desire to act in accordance with positive labour market norms stands
out as the primary motivation. To be sure, many employers are alive to the potential
business benefits of becoming a Living Wage Employer, but a motivation of this type
often appears to be secondary, providing legitimation to a values-based decision in
instrumental terms.

The survey also provided insight into who is involved in signing up to civil regulation and
demonstrated very forcefully that accreditation typically is a top–down decision made by
the senior leadership group within organisations. Where they are present, HR and other
specialist managers have also often been centrally involved. The influence of workers or
of worker representatives on the decision, in contrast, has typically been modest. This
pattern is suggestive of a contemporary return to a very old theme in HRM, in which the
employer accepts a responsibility to promote the welfare of employees including, in the
case of the Living Wage, indirect employees formally contracted to supplier businesses.
It is suggestive of a new paternalism.

The final insight from the survey is that there is evidence to support the business case for
the Living Wage. Employers believe that accreditation has enhanced corporate
reputation, generated HR gains, particularly in the field of labour supply, and in some
cases helped in the winning of new contracts and funding. For most employers,

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moreover, these benefits outweigh the costs and challenges associated with the Living
Wage. It remains, though, that the benefits reaped through accreditation are often
relatively intangible and typically modest in scale. Accreditation emerges from the
research as a benign, not transformative, event for most employers. There is a business
case for civil regulation but its significance should not be exaggerated either as a
motivation for or as a consequence of compliance.

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